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Asymmetric Conditional Variance in Housing Prices - Testing for Downward Rigidity

Hansson, Fredrik LU (2014) NEKN01 20141
Department of Economics
Abstract
The purpose of this paper is to analyze the volatility dynamics of housing markets in the United Kingdom and the United States in order to determine if market inefficiencies cause downward rigidity in housing prices. We hypothesize that the potential downward rigidity will prevent prices from appropriately adjusting downwards, and that positive shocks in housing prices will increase the conditional variance in the following period more than a corresponding negative shocks. We analyze the conditional variance in the housing prices by employing various autoregressive conditional heteroscedastic (ARCH) models. Our results for the United Kingdom and the United States show that shocks in housing prices have a positively asymmetric effect on the... (More)
The purpose of this paper is to analyze the volatility dynamics of housing markets in the United Kingdom and the United States in order to determine if market inefficiencies cause downward rigidity in housing prices. We hypothesize that the potential downward rigidity will prevent prices from appropriately adjusting downwards, and that positive shocks in housing prices will increase the conditional variance in the following period more than a corresponding negative shocks. We analyze the conditional variance in the housing prices by employing various autoregressive conditional heteroscedastic (ARCH) models. Our results for the United Kingdom and the United States show that shocks in housing prices have a positively asymmetric effect on the conditional variance in the following period, and that the E-GARCH model is better than the GJR-GARCH model at modeling this asymmetry. (Less)
Popular Abstract
I would like to thank my supervisors Fredrik NG Andersson and Klas Fregert for their support and insightful comments. I would also like to extend a special thanks to Milda Norkute, without whom this paper would never have been possible.
Please use this url to cite or link to this publication:
author
Hansson, Fredrik LU
supervisor
organization
course
NEKN01 20141
year
type
H1 - Master's Degree (One Year)
subject
keywords
housing prices, asymmetric, price rigidity, E-GARCH, GJR-GARCH
language
English
id
4631466
date added to LUP
2014-09-22 12:40:15
date last changed
2014-09-22 12:40:15
@misc{4631466,
  abstract     = {{The purpose of this paper is to analyze the volatility dynamics of housing markets in the United Kingdom and the United States in order to determine if market inefficiencies cause downward rigidity in housing prices. We hypothesize that the potential downward rigidity will prevent prices from appropriately adjusting downwards, and that positive shocks in housing prices will increase the conditional variance in the following period more than a corresponding negative shocks. We analyze the conditional variance in the housing prices by employing various autoregressive conditional heteroscedastic (ARCH) models. Our results for the United Kingdom and the United States show that shocks in housing prices have a positively asymmetric effect on the conditional variance in the following period, and that the E-GARCH model is better than the GJR-GARCH model at modeling this asymmetry.}},
  author       = {{Hansson, Fredrik}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Asymmetric Conditional Variance in Housing Prices - Testing for Downward Rigidity}},
  year         = {{2014}},
}